These days I am getting lot of queries regarding gold & most of them start with “What should I do with my gold funds?” so I decided to share recap of what has happened in last couple of years & what I think now.
My view is “Trees don’t grow to heaven” – I don’t know it is a bubble or not but if it is, gold price will come down at some point of time. That doesn’t mean gold price will not go higher from current level but do you think you will be smart enough to exit before the bubble burst?? If your answer is NO then have a proper asset allocation & if answer is YES – question is do you think you will be smart enough to exit before the bubble burst?? (Keep asking this question till you get the answer NO)
Before I share what I think about gold prices NOW – let’s check few charts & recap this journey.
World’s Biggest ETF – Performance Chart
Gold ETFs gave investors a new option to invest in gold – they don’t have to worry about security. SPDR Gold Share is world’s biggest gold ETF – Asset Size of this fund is $ 75,391 Million.
- Or $ 75 Billion
- Or INR 4.14 lakh crore (approximately 50% of Indian Mutual Fund Industry)
- Or more than 1300 tonnes gold – which is double than Indian Gold Reserve (550 Tonnes).
Have you ever thought, what will happen if people will lose interest in gold as an asset class??
India’s First Gold ETF
Goldman Sach (earlier benchmark) Gold ETF is the oldest Indian gold ETF with asset size of Rs 3377 Crore, this makes it biggest ETF in India.
Not Bad 2.5 times in 7 years or 14% CAGR.
DSP BR World Gold Fund
This is a feeder fund & was launched in August 2007. Investments were rooted in Blackrock World Gold Fund – which is investing in gold mining companies. Story shared was “that gold mining companies will perform better than GOLD.” Result is in front of us.
Gold Savings Fund
Mutual Funds (other than DSP) were not able to capitalize (earn money) on gold rush – they needed more assets to earn fees on that. ETF as a concept has not picked in India so Reliance bought first gold savings fund (IPL award Nayi Soch) – you invest in fund & they will invest in ETF. (they will charge double expenses)
I wrote this article “Should you invest in Reliance Gold Savings Fund?” & concluded:
“Everyone is ready to convince you that gold price will only go higher but we just want to say – gold should be small part of asset allocation and the reason of buying gold should not be rise in price. I think I have already expressed my views on Gold Prices & also shown you expenses in this product. End of the day it’s your hard earned money.
Agents will come to you & show you 5 Year & 10 year return charts – ask them for 20 years & 30 years chart. You will find gold have even underperformed Fixed Deposits.
Have you ever wondered where were these guys 5 years back when gold was 1/3rd of its current price??”
I also argued (my mistake) in comment section with some Mutual Fund Agent.
You can see difference in return between SPDR($) & Reliance Gold(INR) in the same period – this is because of INR depreciation vs dollar in last 2 years. Check INR Vs Dollar chart.
Reliance Gold Savings Fund Asset Growth
Concept was well accepted by investors (or pushed by asset management companies & distributors) – as investors are always looking for convenience. Current AUM of Reliance Gold Savings Fund is 2270 & Reliance Gold ETF is 2926. That means direct investment in Reliance Gold ETF is just Rs 650 Crores.
Image Moneycontrol
SBI Gold – Number 3
There is long list of gold funds that were launched in this period but third rank goes to SBI Gold Fund (I shared some interesting data & comparisons at the time of fund launch) – this fund came from arguably India’s second (I believe first is our LIC) most trusted brand.
SIPs in Gold Fund
These funds promoted SIPs in Gold funds – if someone invested Rs 1000 per month since inception of fund.
| Fund | Investment Amount | Current Value |
| Reliance Gold | 25,000 | 25,748 |
| SBI Gold | 19,000 | 17,982 |
I think….
I think I have no clue where gold prices are heading because we don’t know the size of bubble (IF….) – this we earlier discussed in “Indian Real Estate Bubble – will it ever burst?”
I think there are lots of lessons from what has happened with gold prices in last 40 years.
Great investment analyst Benjamin Graham (guru of Warren Buffett) was asked what it takes to be a successful investor; he replied
“People don’t need extraordinary insight or intelligence.
What they need most is the character to adopt simple rules and
stick with them.”
I will love to hear your views & lessons in comment section.
Keep it Simple. Just think of it as an ornament and that you can use it for your emergency. Come On, you have loads of investment options.
Hi Mugun,
Good to hear your views… “you have loads of investment options” 🙂
Thanks Hemant 🙂
hi Hemant. nicely timed article,as always. You can tell if its a bubble- by the mad frenzy of retail investors (or should I say gamblers).
BTW, i do not understand the logic behind the saying that gold should form
5%-10% of one’s portfolio. Should gold at all be a part of portfolio of REALLY LONG TERM investor? Could you shed some light?
Hi Dr Kuntal,
An asset class which has less or negative correlation with core assets can be used to reduce volatility of overall portfolio & sometime can generate better returns.
Already the debacle of last week is reveresed and gold rates are on the uptrend again.I would suggest to invest 70% in Gold Funds(not ETFs) ,25% in physical Gold and 5% in Gold mining company funds and hold on till 2020 unnerved and undeterred by whatever is happening now and also in coming 7 years.Gold is bound to give good returns in longtime around 2020 and later.
Hi Chirantan,
I don’t agree with you but is your current portfolio look like this “70% in Gold Funds(not ETFs) ,25% in physical Gold and 5% in Gold mining company”
Wait for $1200 per oz price in 12 month max and invest… you may be lucky if it is an inflation beating investment. above it is a guarenteed way to lose your net worth.
Hi Shinu,
I have no clue about this as my second hand crystal gazing ball is not working properly 😉
Nice article but it does not shed light on some KEY items:
1. What drove price of GOLD higher now (in past decade) as well as during 1970-1980s?
2. We keep hearing GOLD is in a bubble and NO DOUBT it is in one BUT will it burst so soon? and what might break this bubble!!!
3. Can GOLD go even higher up to $3000-3200/oz, YES you read it right.
1. Price of Gold kept rising (in last decade) primarily because below reasons:
a. Increase in instability in western countries now spreading slowly to Global areas like a contagion
b. Federal banks (started with US and Japan) across the globe are printing money like crazy which causes inflation in long run
c. Currencies NOT holding their purchasing power
d. Financial crisis in US due to housing bubble burst
Whats new now?
e. Now its NOT just US but entire Euro-zone is in financial crisis which will have global consequences
f. ECB and FED continue to print money along with Japan and Australia may join them soon
g. Euro is losing its credibility day-by-day and Dollar is not holding its value either
BUT then why did the GOLD prices fall?
1. Cyprus said they will sell their GOLD reserves which ONLY amounts to half billion worth
2. Goldman issued a letter to their investors to liquidate their GOLD holdings
3. Technical support was broken which initiated STOP LIMIT/LOSS orders causing further sell-off
In short, fundamentals that drove the price of GOLD higher are still intact and most likely after stabilization prices of GOLD will head higher and this time it will be massive but exhaustive rally which could happen over next 2-3 years. During same time we might witness collapse of Euro followed by collapse of housing bubble in China and India.
Imagine more like a financial Armageddon across the globe where Gold and Dollar will be king.
Wait, Isn’t GOLD and Dollar suppose to move in opposite direction?
YES, but extreme times calls for extreme actions. Gold is a hedge against instability NOT necessarily inflation while Dollar is a hedge against trust in country and its currency. That does not mean Dollar is a good currency but its mere less worse amongst other major currencies.
Hope this makes sense 🙂
Thanks for sharing.
Makes a LOT of sense. Thanks for the writeup! 🙂
I totally agree with you. We are in time of currency war. Praying that it should not become a real war after few years.
Hi Hemant
A useful post.
Thanks Anil but why don’t you share your view on this matter.
Hi,
I’m looking for tax saving options (already meet the requirement under 80C). One advice I was given is to consider ICICI Elite Life as an option – the claim is 100% of the returns are tax free under 10(10d). Additionally, the investment is done in debt instruments (100%) with the option to move part of the funds to equity monthly to give the benefit of interest rates plus SIP in equity.
Charges are supposed to be same as mutual funds with an additional mortality charge which will get adjusted against the compounded returns earned (lock in period of 5 years). I’ve read your articles that say don’t mix insurance and investment – however, confused about this one as it seems like a good deal.
Would appreciate any advice you can give me on this.
Dear Surana,
Elite life and Elite wealth are very low charge structure products and when compared with mutual funds with a time horizon of 10 years and more they will give better returns than mutual funds.
Regards
Chinmay Jhaveri
Mobile No
9899300000Typical insurance selling by an insurance guy…
Please stop fooling around.
Hi Hemant Sir,
I am investing in Reliance Gold saving fund a SIP of 1000rs/month. since 2 years shall I continue or stop my SIP, I also have SIP in equity which are going well. Just wanted to ask about GOLD saving fund.
thanks in advance
Hi Hrishikesh,
I have no clue – stick to your asset allocation.
What i Think about Gold Prices
A nice Article. But to my mind it comes we are collecting Gold from what angle exactly. I have 2 daughters and it comes to my mind a twin strategy approach. I will accumulated Gold ( in terms of ETF) to the extent i guess i need to make jwellery for them. Lets say a ball park figure of 1 Kg of Gold. I will accumulate in small quantities till their marriageable age. ( Preferably in ETF form) and not bother much even if i am not making amazing return because that accumulated Gold can be used for actual enjoyment.
As Hemant says a small percentage invested in Gold out of your portfolio is a good bet because unlike Shares and MF, Gold can be actually used in an Indian context by making equivalent Jwellery. To my mind since there is a physical usabability of this Metal, its a good investment. But it should not form a significant part of your portfolio.
As for prices of Gold or that matter any asset can never be guaged or timed. After all its just a metal and in need hierarchy it only has a luxury value so it times of necessities going by basic demand elasticity concept, Gold might fall to absymal depths or in terms of currency crises rise to astronomical heights just like any other asset class ( eg Real estate bubble in Japan and susbequent burst)
Cheers
Amit
Why you are believing on dollar, even though Fed is printing a hell lot of dollar.
See the headline inflation data for every country. Also keep in mind those data are not 100 % correct as it contains component which people have stopped consuming for long time. Sine the demand for those particular goods is not much so that factor price will not change much. I want to make the point is that, actual inflation >= headline inflation.
Suppose you deposited 100 rs in bank @ 10% interest rate. but if the inflation is 12% than your Fd is actually being robbed at a 2% pa, means you are becoming poorer by 2% every year.
Now still you have faith on fiat currency. But on other hand Gold which is true money you are doubting on it. Why?
Note: Government can print money ( in case of paper money)
Government can increase number of zeros in case of digital money
but to generate gold government will have to mine and processes to extract gold. Which involves a lot of money. So it is not easier to have gold without any effort. Long back 1,00,000 was a very big amount now its value is not that high. Same situation will happen for 1,00,00,000 after 20 to 25 years.
Your gold will protect your wealth for longer.
Thanks Hemant for your valuable guidence. Pl keep it up. The entire is being benefited by your suggestions.
Rgds,
Thanks Avijit.
Hi Hemant,
A pretty useful post, yet again.
I personally feel it is better not to take a view on the price itself and focus on maintaining the asset allocation and keep on balancing it unemotionally. Most opinions suggest having 5% – 10% of gold in your portfolio. What is not clear to me is whether it should just be a ‘gold portfolio” or a “previous metals portfolio”..meaning a combination of gold, silver..or even platinum. Not sure about India, but those residing outside of India do have options available to invest in the ETFs of these commodities. If the ultimate idea is to 1) diversify, and 2) with asset classes that have less or no co-relation with the core class, then is it advisable to split between these three commodities ? Of course there is some ‘industrial’ play as well in case of silver and platinum, but just wondering if having all three would not provide both – a better stability and better returns – to the portfolio over mid-to-long term..? I do not have a study or an article to support this though.
Would appreciate having your / readers’ views.
Why you are believing on dollar, even though Fed is printing a hell lot of dollar.
See the headline inflation data for every country. Also keep in mind those data are not 100 % correct as it contains component which people have stopped consuming for long time. Sine the demand for those particular goods is not much so that factor price will not change much. I want to make the point is that, actual inflation >= headline inflation.
Suppose you deposited 100 rs in bank @ 10% interest rate. but if the inflation is 12% than your Fd is actually being robbed at a 2% pa, means you are becoming poorer by 2% every year.
Now still you have faith on fiat currency. But on other hand Gold which is true money you are doubting on it. Why?
Note: Government can print money ( in case of paper money)
Government can increase number of zeros in case of digital money
but to generate gold government will have to mine and processes to extract gold. Which involves a lot of money. So it is not easier to have gold without any effort. Long back 1,00,000 was a very big amount now its value is not that high. Same situation will happen for 1,00,00,000 after 20 to 25 years.
Your gold will protect your wealth for longer.
is it good time to invest in gold funds?
Better buy physical gold.
Dear Sir,
I will like to share the following information about the foreign reserve holding of each country and the amount of gold they are holding as a part of there foreign reserve. Figures presented down is approximate value only.
S No. Countries Foreign reserve in dollar percentage of gold
1 Greece 7.3 billion 82%
2 Portugal 22 b 90%
3 Spain 50 b 30%
4 Italy 175 b 72%
5 France 179 b 70%
6 Slovakia 2.5 b 68%
All the countries mentioned above are high dept on there account. Definitely if they start selling there gold the gold price will come down but let us see other way
On Other side
1 China 3.3 trillion only 2%
2 Japan 1.25 trillion only 3%
3 Saudi Arabia 627 b only 3 %
4 Russia 527 b 9%
5 Switzerland 522 b 11%
6 Taiwan 403 b 6%
7 Brazil 373 b only .5 %
8 South Korea 307 b 1%
9 Hong Kong 304 b 0%
10 India 290 b 10 %
My question is to all the readers is if all these countries with lesser quantity of gold holdings start buying than in which direction the gold will move. In this era of currency war where all the central banks are trying to keep there interest rate low will steal your wealth without being noticed much. Gold is a real money whereas all currency has no real intrinsic value.
Imagine a person having a bag full of money, which he received after retirement, could buy only a packet of bread. This is a real incidence you search on internet.
See the hyper inflation state in Zimbabwe few years back, that time gold was the only form which people were accepting for shopping’s in Zimbabwe. Again search on internet for whole story.
This is the time to buy gold, if you miss these time then you will miss forever.
This type of correction has happen in past also but after that correction it has rallied much faster.
Don’t compare 1981 crash of gold prices since that time they removed the backing of gold for dollar as reserve currency.The same story will not repeat again and again, confidence on dollar is losing. Euro is also not good.
Gold and silver will only rock that time.
Hi Rajnish,
Thanks for sharing.
sir, i want to buy silver commoddity for holding. but i read from advisory sites that it will go down to approx 32000then to buy. will it happen?
No Clue Naveen.
Hi hemant
I think gold shouldbe an alternative investmen
t used only as a last resort and best worn as ornament.
I also think paper gold is slightly better than real gold.
What do you think ?
Hi Mousumi,
For investment paper gold looks better – hope we are not missing something.
The rise and fall of gold prices depends on the supply and demand. As long as the demand is high, prices will be high. Nowadays gold is being bought by institutions like banks etc rather than general public leading to the high demand. When public too starts buying, the demand will only rise. Also the fall in dollar is too a deciding factor in the high price of gold.
As such i believe for long term, it is not a good option but for short term gains who knows the prices may go sky high. But it is good to maintain atmost 15% of your portfolio for gold.
Rgrds,
Hi Jithin,
I already mentioned in starting of the post that we are not smart enough to enter & exit at the perfect time – asset allocation is the better strategy.
Nice article, Hemant. I have a basic question. Even if I buy gold coins & bars from banks, where do I sell it if I require urgent money ? Banks do not buy it back. The seller is at the mercy of Jewellers wherein rates are not constant. What is the ideal solution?
Hi Chandrashekhar,
Buying gold coins from banks is very expensive way to invest in gold – better stick with some local jewellery or ETFs.
Hi Hemant
In the past I used to buy a gold coin from bank every year near Diwali. Now I am investing only in Reliance Gold Savings Fund via monthly SIP. I treat it just like SIP in equity fund and never look at the price of the gold.
sir, i have not So much money to invest in gold fund but i have some money to invest in silver, .plz tell me the future in this .i want to recover from inflation rate with some profit.
Nice article, Hemant sir,I personally feel it is better focuses on maintaining the asset allocation and keep on balancing my portfolio
Hi Pradeep,
Thanks for sharing.
Hi,
If you think Gold as a commodity, then I agree that you should have very little in your portfolio. But in India, Gold has a different view rather than just commodity. If the whole world is selling gold, people in India are buying physical gold. Hence Gold will ever have its sheen. I agree that it might not give returns like equity over the long term, but again in India it will not be just seen as mere commodity.
So my view is Gold should be part of one’s portfolio but definitely be higher percentage than your % allocation for commodity.
Regards,
PB
i bought gold etf by sip when it was 1500 and stopped till 2000 because i couldn’t afford anymore.
moment it hit 3000..i sold all..my family thinks i am genius..
if it was gold jewellery i am selling same my family will think i am drinking gambling and no money so i am pawning it off..
Hi
I want to know about inflation indexed bond issued by RBI. How the principal amount will be calculated at the end of 10 years.
I believe that we have enough indicators that gold is now a bubble . Why to ride on bubble? Why not to switch to debt till the volatility ends?
Comments are closed.